Taxability of service bond amount paid

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If you've paid a sum to break a service bond with a PSU, you're likely wondering if this amount is tax-deductible. While some may think it's similar to notice pay, it's generally not deductible from your salary at final settlement. Instead, it's a payment made under the bond's terms, and its deductibility for income tax purposes can be complex.

sujaykumar 7162

sujaykumar 7162 (Querist)
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08 February 2021 I have paid an amount of Rs. 2,50,000 to a PSU for breaking the service bond agreement. Can I deduct this amount while calculating my gross income for this year while filing ITR?

CA R SEETHARAMAN

CA R SEETHARAMAN (Expert)
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08 February 2021 Yes, deduct the amount.

CA.Pujah

CA.Pujah (Expert)
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09 February 2021 In my opinion, it cannot be deducted from your income.

Unlike Notice pay, it's not deductible from the salary payable to you at final settlement, rather you have to pay this amount in terms of the bond. At times such amount is bigger than the salary you receive during that year.

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